Sweden Responds with a Lower Corporate Tax - What are the implications on the stock market?

University essay from Handelshögskolan i Stockholm/Institutionen för redovisning och finansiering

Abstract: Using an event study methodology, this thesis investigates whether Sweden's latest corporate tax cut, valid from January 1st 2013, induced a market wide stock price reaction at Nasdaq OMX Stockholm. Furthermore, this thesis also uses OLS regressions to examine whether a firm's stock price reaction, in conjunction with the news of the lowered corporate tax, can be explained by the reduction's implications in the firm's consolidated financial statements. The thesis does not find any convincing evidence that there was a market wide reaction to the news of the lowered corporate tax, suggesting that investors might not have changed their expectations on future earnings. In addition, using OLS regressions, this study could not identify any connection between a firm's stock return and the tax reduction's effects in the firm's consolidated financial statements, implicating that investors either do not acknowledge the deferred accounts at their reported values and/or that they did not revalue the consolidated financial statements at the time of the government's proposal.

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